News / Utah / 
Why gas prices in Utah and the nation are on the rise

Scott G Winterton, Deseret News

Why gas prices in Utah and the nation are on the rise

By Jasen Lee, Deseret News | Posted - Mar. 26, 2021 at 8:29 a.m.



SALT LAKE CITY — Going on a road trip this summer could be a bit more expensive as demand for gas is expected to increase over the next several months, driving fuel prices higher.

"People are getting vaccinated and case counts are going down," said Gavin Roberts, assistant professor of economics at Weber State University. "People are feeling safer. The economy is opening up. So there is a widespread increase in global demand for crude oil and gasoline."

Economic observers predict prices at the gas pump could climb to the $4 per gallon range. The reason? More drivers are expected to hit the roads for getaways and vacations than last spring and summer as restrictions implemented to curb the COVID-19 outbreak are eased across the country.

Roberts said investors are also putting more money into oil futures, which is likely to raise prices heading into June, July and August, with global demand rising as the world recovers from the pandemic.

Currently, the average price for regular gasoline in Utah is around $3.15 per gallon, according to AAA. That's well below the highest price seen in the state in July 2008 at $4.22 when crude oil prices were almost $125 per barrel, compared to a closing price of $60 per barrel Wednesday, Roberts said.

The average U.S. price of regular-grade gasoline in mid-March was $2.89, up 72 cents since Nov. 20, according to The Associated Press. The highest average price in the nation was $3.86 a gallon in the San Francisco area. The lowest average was $2.48 in Baton Rouge, Louisiana.

"OPEC decided to continue to curtail production during the month of April, so that is a supply constraint that they will be continuing," he said. "As those types of supply constraints start to loosen over time — which is likely — Saudi Arabia and Russia probably will increase oil production relatively soon to capture the higher prices because they'd like to bring more oil into the market when oil prices are high."

All that translates into higher fares for consumers who wish to board flights to travel to far off destinations or those filling up at the local gas pump, he said.

He noted that up until recently, OPEC had lost some of its grip on the U.S. fuel market as America had become the leading petroleum producer in the world. But the winter storm that struck the South and Southwest — particularly Texas — curtailed some of that domestic oil production in the short term, allowing OPEC to gain more control over the market.

"If OPEC, in a normal environment, tries to curtail production and increase prices, a lot of frackers in Texas are going to step in and increase supply as a result of that. But in this particular circumstance, we had a big winter storm that was a rare event," Roberts explained. "There's a lot of energy infrastructure in Texas that was not designed for a winter storm. This impacted both oil production in Texas, but it also impacted refining capacity. So we're observing an increase in gasoline prices because oil prices are increasing. However, if you shut down that refining capacity, then that's actually going to cause gasoline prices to rise at a quicker pace than oil prices."

The price and the number of gallons pumped are displayed on a gas pump at Harts Gas & Food in Midvale on Wednesday, March 24, 2021.
The price and the number of gallons pumped are displayed on a gas pump at Harts Gas & Food in Midvale on Wednesday, March 24, 2021. (Photo: Scott G Winterton, Deseret News)

He said that because American oil production capability is far enough advanced, foreign producers won't be able to control prices for very long, meaning prices will likely not remain high for an extended period.

"For example, back in 2015 OPEC increased production because their assumption basically was that they were going to push U.S. production out of the market by decreasing the price enough that U.S. producers would say, 'No, we're outta here,'" Roberts said. "But what actually occurred is the reaction in the U.S. was to figure out how to lower costs. ... Once you figure out how to make your production process cheaper, you continue to use that as a less expensive production process. That is something that OPEC has got to be careful about."

While he shied away from making any predictions, Roberts said he believes much of the projected summer increases are already "baked into" the current prices for oil and gasoline.

"I'd actually probably expect a flatter summer curve than we would normally would have," he said. "They will be higher in the summer, but I don't think that we'll see a big spike in the summer."

One wild card could be how Americans decide to spend their recently approved federal stimulus payments.

"If everybody decides to take their stimulus checks and go on a road trip, that will drive demand to go way, way up. That is a big question that we don't know the answer to, 'Is everybody going on a road trip this summer?'" he said. "One, because they've got some extra money in their pockets. Two, they just spent probably the longest period of their lives not going on a road trip and that can lead to huge increases, and so that's the big question for the market."

Either way, he does not believe strongly that Utah will see historic prices at the pump this time around like those that occurred during the Great Recession.

"I'd be pretty surprised by a $4 to $4.50 gas price — a sustained one for sure. I'd be quite surprised by that in Utah, possibly California because you're going to have quite a premium there, so maybe you get closer to that," Roberts said. "It would be short-lived in either case, but I'm totally accepting that possibility if we get the big post-COVID party this summer and if that leads to road trips, we could see some major actions."

Jasen Lee

    SIGN UP FOR THE KSL.COM NEWSLETTER

    Catch up on the top news and features from KSL.com, sent weekly.
    By subscribing, you acknowledge and agree to KSL.com's Terms of Use and Privacy Policy.

    KSL Weather Forecast